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Cumberland and Westmorland Herald
  • News
    Farmers flock to North Sheep

    Farmers flock to North Sheep

    Cumbrian animal charity celebrates with dog show for opening of new kennel complex

    Cumbrian animal charity celebrates with dog show for opening of new kennel complex

    Appleby Horse Fair: Several cases of animal cruelty

    Appleby Horse Fair: Several cases of animal cruelty

    Multiple fire crews tackle roof fire in Crosby Ravensworth

    Multiple fire crews tackle roof fire in Crosby Ravensworth

    Free domestic abuse support drop-in service launches in Penrith

    Free domestic abuse support drop-in service launches in Penrith

    Penrith bar relaunched with vibrant events planned

    Penrith bar relaunched with vibrant events planned

    Penrith Beacon access closed after vandalism

    Penrith Beacon access closed after vandalism

    Fire crews spend six hours tackling blaze at timber firm’s headquarters

    Fire crews spend six hours tackling blaze at timber firm’s headquarters

    £15 million luxury care home plans for Penrith

    £15 million luxury care home plans for Penrith

  • Sport
    Patterdale’s Eden Eagles make history

    Patterdale’s Eden Eagles make history

    Penrith teen crowned British vault champion

    Penrith teen crowned British vault champion

    Penrith gymnasts represent North of England in finals

    Penrith gymnasts represent North of England in finals

    New boss revealed for Penrith AFC

    New boss revealed for Penrith AFC

    Penrith Panthers celebrate winning season

    Penrith Panthers celebrate winning season

    Darren Edmondson leaves Penrith AFC

    Darren Edmondson leaves Penrith AFC

    Lucy plays key role in county T20 triumph

    Lucy plays key role in county T20 triumph

    Gold for Keith in annual festival of orienteering

    Gold for Keith in annual festival of orienteering

    Cumberland and Westmorland wrestlers head to European championships

    Cumberland and Westmorland wrestlers head to European championships

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Home Farm and Countryside
This article appears as part of a paid partnership with Armstrong Watson

Hidden Inheritance Tax pitfalls for farming businesses

By Jonathan York, accounting director, Armstrong Watson

by CWH
1 November 2023
in Expert advice, Farm and Countryside, Sponsored
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Jonathan York

It is dangerous to assume that 100 per cent Agricultural Property Relief (APR) or Business Property Relief (BPR) will apply to every asset that is passed on in a modern farming business.

There are many cases where HMRC has argued that part of a farming business is chargeable to Inheritance Tax (IHT).

The key to understanding this issue is to look at the differences between APR and BPR:

  • APR can be due even though the land is not farmed by the landowner. To obtain BPR the property owner must be involved in the trading business.
  • 100 per cent APR can be due regardless of whether the asset is owned by the business or is held outside by an individual partner or shareholder. To obtain 100 per cent BPR the land must be owned by the business.
  • APR is only due on the agricultural value of an asset. Land or buildings with a potential non-agricultural use may not qualify for APR to their full value, though they can sometimes qualify for BPR instead.
  • BPR is denied where a business consists wholly or mainly of holding investments.

It is the final point that has caused much uncertainty and has been the subject of dispute with HMRC in recent years. The following examples show how the conditions of the reliefs may be applied, however, every case needs to be considered individually.

Diversified farming businesses

When a business is receiving income from a range of non-farming activities, APR will not be available on the full value of the farm.

If it can be shown that the business is predominantly a trading business then the whole property can qualify for BPR. This has been the subject of several tax tribunals and court cases and involves analysing a number of different factors including turnover, profit, asset value and management time.

Grassletting

To be a farmer (in the eyes of HMRC), the landowner must be seen to be carrying out husbandry on the land.

If the grazier fertilises the land and sprays weeds, then it is the grazier not the landowner who is the farmer for tax purposes. Similarly, barter arrangements where the grazier pays for the fertiliser in exchange for a lower grazing rent should also be discouraged as it could result in loss of IHT reliefs.

Holiday cottages

HMRC has successfully denied BPR on most holiday cottages. There was an exception involving a business on the Scilly Isles where BPR was allowed, but caution needs to be exercised. The judge in this case commented that the property owners provided an exceptional level of service, but only just qualified for BPR.

Horse livery

In another case, a horse livery business successfully claimed BPR as it was able to show that it provided a range of services over and above the provision of a stable and grazing.

However, other livery businesses, particularly those offering DIY livery, will find it difficult to convince HMRC that they are providing sufficient services to qualify for BPR.

Caravan parks

If a caravan park consists mainly of annual pitch fees, rather than from touring caravans or campers, then it could be considered an investment business. To obtain BPR it is necessary to show that a considerable range of other services are offered to visitors.

To any farming business, both APR and BPR can be extremely valuable when it comes to IHT planning, but the conditions that stipulate whether or not a property qualifies for the reliefs can be complex and are often based on case law.

For more information and advice about APR and BPR please contact our agriculture team on 0808 144 5575 or email help@armstrongwatson.co.uk

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Cumbrian animal charity celebrates with dog show for opening of new kennel complex

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